UNITED STATES GOVERNMENT PRINTING OFFICE
CONTRACT APPEALS BOARD
Appeal of Stevens Graphic, Incorporated
Appeal dated February 2, 1981
Decision dated March 22, 1982
Panel 4-81
THOMAS O. MAGNETTI, Chairman
CHARLES T. RAY, Member
GEORGE A. SIMMS, Member
PRELIMINARY STATEMENT
This is a decision on a timely appeal filed by Stevens Graphics,
Inc. (hereinafter referred to as the contractor). The contract
(Jacket No. 313-269) required the contractor to produce IRS tax
forms. Because of improper paper stock, the contractor had to
run the forms twice. It then claimed compensation ($41,400) for
the first run. The final decision of the Contracting Officer
disallowed the claim. The contractor disputes this final
decision of the Contracting Officer. This appeal is taken in
accordance with Article 3 (the "Disputes" clause) of the
Government Printing Office Contract Terms No. 1, GPO Publication
310.2, revised August 1, 1979. Exhibit 1, Appeal File (hereafter
A.F.).
The jurisdiction of the GPO Contract Appeals Board over this
appeal is established pursuant to GPO Instruction 110.10B,
entitled "Board of Contract Appeals Rules of Practice and
Procedure", and to Contract Terms No. 1, supra. This decision of
the Board is based solely on the record which consists of the
exhibits within the Appeal File and the testimony heard by the
Board at a hearing on this appeal held on October 29 and 30,
1981.
STATEMENT OF FACTS
1. The contract (Jacket 313-269) called for the production of
over 11 million 1040A tax forms for the Internal Revenue Service.
Exhibit 3, A.F.
2. This contract provided that the contractor was subject to all
the terms and conditions of GPO Contract Terms No. 1, supra, and
GPO Quality Assurance Through Attributes Program (GPO Publication
310.1, May 1979; Exhibit 16, A.F.) The Quality Attributes Program
and Contract Terms No. 1 were incorporated by reference into the
contract specifications. Exhibit 3, A.F. The specifications
were incorporated by reference into the contract's Purchase
Order. Exhibit 5, A.F.
3. The specifications required printing of the forms in black
and red ink on either white offset book paper or white C.W.
writing paper equal to the standards established in Joint
Committee on Printing (JCP) codes A60 or D10. See Exhibits 3
and 8, A.F. Although the contract permitted the use of
reclaimed, recovered and recycled paper, the product had to
conform with not only the JCP standards but also with the GPO
Quality Assurance Through Attributes Program. According to those
standards the paper could not contain more than 5% unbleached
fibers. Exhibits 8, 16, A.F.
4. The GPO awarded the contract to the contractor by Purchase
Order 14696, dated August 15, 1980. Exhibit 5, A.F.
5. The contractor ordered the paper from Georgia-Pacific Paper
Company. Although the paper was recycled, the contractor
believed it would meet the specifications. Transcript, pp. 9,
21-23, 31 (hereafter T. 9, 21-23, 31). The contractor's contract
for the paper did not include a provision directing Georgia-
Pacific to comply with JCP or GPO standards on paper content or
quality. T. 38, 315*.
6. When the paper was received by the contractor, Mr. Edmond
Ward, the contractor's General Manager, visually inspected one
roll of the paper. T. 9, 26, 29/30, 45.
7. It is not possible to determine fiber content in paper by
visual inspection. Chemical analysis is necessary to make a
determination concerning fiber content in paper. T. 24, 35, 40,
46, 64-67, 98-99, 106, 304, 334.
8. There were no methods reasonably available to the contractor
to chemically analyze the paper product to determine presence of
unbleached fiber. However, the only method utilized by the
contractor for inspection of the paper content was visual. T. 9,
26, 45-46, 71-72, 76, 304, 308.
9. Pursuant to the provisions of the contract, the contractor
notified the GPO seventy-two hours prior to press production. T.
10. Prior to production, on Monday, October 27, 1980, Mr.
Vincente Tillman, a printing management specialist with IRS
arrived at the contractor's plant in Greensboro, North Carolina
in order to inspect the production procedure. T. 248. Mr.
Tillman was met by Mr. Ward, who in turn put him in the care of
Mr. Edward Dandle, the contractor's Assistant Plant Manager. T.
10, 54-55, 248.
10. During this inspection, Mr. Tillman was shown sample press
sheets of the tax form. T. 248. He did not have any equipment
with him to chemically analyze the paper; nor was he trained to
do so. T. 84, 99, 251, 334, 346. He suggested that the ink,
margins, and register be adjusted to better comply with the
contract specifications. T. 54-56, 248-250, 281-282.
Unsatisfied with color of the ink on the paper, Mr. Tillman
requested continued adjustment of the ink during the inspection.
T. 54-55, 249-250, 253, 261-263, 265, 285.
11. After these adjustments, Mr. Tillman ,wrote "O.K. to print"
on one of the sample tax forms. T. 54-56, 250, 281-282; Exhibit
14, Attachment B, A.F. He was then informed by Mr. Dandle that
production of the tax forms would commence. T. 10, 61, 74,
76-77, 253, 272.
* It should be noted that in the two volumes of transcript from
the hearing record, there are no pages between pages 128 and 239.
12. Mr. Tillman then made inquiries concerning the availability
of shipping materials (bills of lading, shipping cartons, etc.)
and paper supplies; and was shown several rolls of paper stored
in the contractor's warehouse. T. 56-57, 75-76, 252. The
inspection having ended, Mr. Tillman left the contractor's plant
carrying with him a number of the sample press sheets. T. 254.
13. Production began at the contractor's plant after the
inspection and was completed by approximately 9 o'clock Wednesday
morning (October 29, 1980). T. 11, 61, 74.
14. On October 28, 1980, another IRS inspector, Glenn Pelicheck,
arrived at the contractor's plant to inspect another IRS.form.
T. 11, 58. Mr. Pelicheck brought with him one of the press
sheets of the 1040A form. He inquired as to the ink used on the
1040A form but determined it was satisfactory. Id.
15. On the morning of October 28, 1980, apparently unsatisfied
with the sample press sheets, Mr. Tillman brought the sheets to
the attention of his superiors, Thomas May, IRS Procurement
Manager,and John Smith, IRS Assistant Procurement Manager. T.
254, 267-268, 275, 278-281, 331. They looked at the forms and
Mr. May instructed Mr. Tillman to have the paper tested at the
GPO. T. 268, 331, 339. Mr. Tillman brought the forms to the GPO
for testing that day. T. 268.
16. The forms were tested by the GPO Quality Control and
Technical Department and their content was determined to contain
over 50% unbleached fiber. T. 333. These results were
communicated to Mr. Thomas May on the morning of October 29,
1980. T. 254, 287. Based on these findings, Mr. May informed
the GPO that the forms were unacceptable to the IRS. T. 332-333;
Exhibit 7, A.F.
17. On Wednesday, October 29, 1980, after the production run was
completed, the GPO notified the contractor at approximately 11:00
a.m. that the forms were unacceptable because they did not
conform to the contract specifications regarding paper quality.
T. 58-59, 332; Exhibit 12, A.F. The contractor was instructed to
obtain conforming paper and to reprint the contract. T. 11-12,
332. This rejection was confirmed by a letter dated October 31,
1980. Exhibit 13, A.F.
18. The contractor did comply with GPO instructions and produced
a conforming product within the original time schedule.
Subsequently, the contractor requested compensation in the amount
of $41,400 for the expense incurred by the first press run. This
claim was rejected by the Contracting Officer in a letter dated
December 2, 1980. Exhibit 14, Attachment E.
19. By letter dated February 2, 1981, the contractor appealed
this decision to the GPO Contract Appeals Board. Exhibit 14,
A.F.
20. A panel of that Board held a pre-hearing conference
regarding the claim on October 8, 1981. A hearing was held on
October 29 and 30, 1981, at which both parties were represented
by counsel.
ISSUES
It was determined at the aforementioned pre-hearing conference
that the following three issues had been raised by the
contractor's appeal (see the Pre-hearing Statement):
I. Did the actions of the government constitute an acceptance of
the forms produced by the contractor on or about October 29,
1980?
II. Did the actions of the government constitute a constructive
change of the contract?
III. Did the government's actions operate to estop it from
denying the contractor its costs for printing the forms that were
produced on or about October 29, 1980?
DISCUSSION
In a case such as this, where the Government has rejected work
and required the contractor to correct the defects, it bears the
burden of proving that the original work did not conform to the
contract requirements. Southwest Welding and Manufacturing Co.
v. United States, 413 F.2d 1167 (1969); see also, Hardeman-
Monier-Hutcherson, ASBCA 11785, 67-1 BCA ¶ 6210; Ramar Co., ASBCA
16060, 72-2 BCA ¶ 9644; Pams Products, Inc., ASBCA 15847, 72-1
BCA ¶ 9401. The Government meets this burden by submitting
evidence of the non-conformance to contract specifications. This
evidence would include any test it has.conducted which would show
non-compliance. C.W. Roen Construction Co., DOTCAB 75-43, 76-2
BCA ¶ 12,215. In the instant case, the IRS requested that the
GPO Quality Control Technical Department conduct a chemical
analysis of the paper used by the contractor. Findings of Fact,
No. 15 (hereafter FF. 15). The test results indicated that there
were 50% unbleached fibers present in the paper. Exhibit 10,
A.F.; FF. 16. Since contract permitted only 5% unbleached fiber,
the contractor's paper did not meet the specifications. Exhibits
3, 8, 10, A.F. This fact was not disputed by the contractor. T.
31, 36.
The issues to be resolved, therefore, do not relate to compliance
with the contract, but rather arise from an the inspection of the
press run by an IRS inspector. FF. 9-12. This inspector
inspected the press run prior to production and marked "O.K. to
print" on a sample press sheet after having the ink color, the
margin size, and the registration on the form adjusted in
accordance with the specifications. FF. 10-11. After these
adjustments, the inspector was apprised by the contractor's
employees that production would commence. FF. 11. Following the
departure of the inspector, production began and was completed in
less than two days. FF. 13. However, the inspector,
dissatisfied with the color of the samples of the tax forms that
he brought back to Washington, showed the samples to his
superiors. They instructed him to have the forms chemically
analyzed by the GPO. FF. 15. The test results indicated that
the paper did not conform to contract specifications. FF. 16.
After the IRS was notified of these results, it communicated to
the GPO its unwillingness to accept forms printed on this paper.
The GPO thereupon rejected the tax form. Id. This decision was
transmitted to the contractor approximately 2 hours after the
press run had been completed. FF. 17.
The contractor contends that the inspector by his actions
approved the tax form as printed on non-conforming paper and that
this approval constituted acceptance of the form on the non-
conforming paper. Contractor's Brief, pp. 9-13. The contractor
argues that any defect in the paper was patent and therefore
acceptance of the non-conforming product by this inspector would
cut off any right of the Government to require reprinting. Id.
The contractor further asserts that the inspection and subsequent
approval by signing "O.K. to print" on the sample press sheet
constructively changed the contract provisions by permitting
printing on non-complying paper. Contractor's Brief, pp. 13-17.
Furthermore, since the Government knew the paper was being tested
for compliance and did not notify the contractor until after it
had received the test results, the Government breached its
implied duty to inform the contractor of these materials facts
and therefore constructively changed the contract. Any such
constructive change, if proven, would entitle the contractor to
relief for expenses incurred as a result of the change. The
contractor's third argument is that the Government should be
estopped from denying the contractor's claim because the
Government knew the paper was being tested for compliance and did
not inform the contractor of the testing procedure. Contractor's
Brief, pp. 17-22. The contractor relied on the actions of the
allegedly duly authorized IRS inspector to its detriment by
printing on non-conforming paper.
As regards the first issue raised by this appeal, the Board rules
that the actions of the IRS inspector did not constitute
acceptance of the substandard paper. It has been held that
inspections by Government inspectors at contractor's plants are
not acceptance and do not preclude rejection after the supplies
are shipped. Mack Equipment & Machine Company, ASBCA 12532, 68-2
BCA ¶ 7140; Washington Technological Associates, Inc., ASBCA
10048 & 10349, 65-2 BCA ¶ 4892. However, as the contractor-has
pointed out in its brief, contractors have been allowed to rely
on the instructions and guidance of inspectors who have been
dispatched by Contracting Officers to inspect a contractor's
plant prior to production or during production. Centre
Manufacturing Co., Inc. v. United States, 392 F.2d 229 (Ct. Cl.
1968); Max Drill, Inc. v. United States, 427 F.2d 1233 (Ct. Cl.
1970). In the instant case, the weight of the evidence indicates
that the IRS inspector was approving or accepting only what he
could visually inspect, i.e., the printed image on the paper. He
was not approving or accepting the content of the paper. T.
91-92, 103-104, 112a, 114, 251, 281-282, 329-330. Therefore any
acceptance or approval would not extend beyond the approval of
the printed image to include acceptance of non-conforming paper.
Both Mr. Tillman, the IRS inspector, and Mr. May, his superior,
testified that Mr. Tillman's inspection only included such areas
as the ink on the paper, the margins, and the line registration.
T. 251, 281-282, 330. Mr. Tillman was not able or authorized to
inspect the content of the paper. Id. If Mr. Tillman did not
have the authority to inspect the content of the paper, then he
could not bind the Government in any matters beyond his original
authority. Max Drill, Inc. v. United States, supra, at p. 1243.
Furthermore, Mr. Tillman, Mr. May and Mr. Fontana, a GPO employee
proffered by the Government as as expert in press inspections,
testified that no inspector is authorized to change any provision
of the specifications without written authorization of the
Contracting Officer. T. 86, 247, 335. See also, Tellico Lumber
Company, AGBCA No. 80-149-3, 80-2 BCA ¶ 14,787. No such
authorization was sought or obtained. Without the express or
implied authority to alter the contract provisions relating to
the content of paper, any actions by the inspector relating to
acceptance of non-conforming paper, had they occurred at all,
would have been cloaked with only apparent authority. Such
authority can not bind the Government. Federal Crop Insurance
Corp. v. Merrill, 332 U.S. 380 (1947).
Mr. Fontana testified that an inspector would not have the proper
equipment to inspect the fiber content of the paper while on a
inspection of an IRS tax form contract at a contractor's plant.
T. 84, 98-99, 106. An inspection of fiber content could only be
done by through chemical analysis. Id; FF. 7. This was verified
by the contractor's own witnesses who testified that the fiber
content of the paper could not be determined by visual inspection
alone. FF. 7, 8. Mr. Ward testified that due to the nature of
recycled paper visual inspection would be useless in determining
the fiber content. T. 35, 40, 45-46, 66-67. Mr. Dandle
testified that the necessary equipment for such analysis was not
on the contractor's premises. T. 71-72, 76; see also, T. 9, 24,
64. Based upon the testimony relating to this inspection, it is
obvious that Mr. Tillman could not and was not accepting the
product printed on defective paper. Since neither he nor anyone
else present during the inspection could have sufficiently
analyzed the paper to determine its conformance with the contract
specifications, it is not reasonable to believe that the
inspector had the authority, as has been argued by the
contractor, to accept the forms as printed on the
defective,paper. The "O.K. to print", therefore, only related to
the printed image on the paper.1/
This case is analogous to the facts of W.L. Spruill & Co., Inc.,
ASBCA No. 14390, 71-2 BCA ¶ 8930. There it was held that the
contractor was not entitled to compensation for performing
corrective work after the initial work had been approved by an
on-site Government inspector. The Board ruled that this approval
did not constitute final acceptance but was provisional in nature
because the inspector did not.know that the contractor was using
a non-conforming product. The inspector's failure to protest the
use of this substandard material was not construed as a binding
acceptance of material not conforming to the contract
specifications. Additionally, the Board did not consider the
approval to be a waiver of a contract requirement, the burden of
which the contractor had assumed along with the risk of non-
compliance. The risk of non-compliance does not shift to the
Government when it inspects a contractor's plant. See also,
Felton Construction, Co., AGBCA No. 406-9, 81-1 BCA ¶ 14,932.
In the instant case, the contract specifically required the
contractor to use materials equal to paper standards set out in
the contracts (JCP Standards A60 or D10). It is well established
that the Government is entitled to enforce strict compliance with
the specifications and standards set forth in its contracts. Red
Circle Corp. v. United States, 185 Ct. Cl. 1, 8, (1968);
Jefferson Construction Co. v. United States, 151 Ct. Cl. 75
(1960); Gem Business Forms, GPO BCA 5-81, August 29, 1981. The
contract in issue placed the burden of compliance on the
contractor and the presence of a Government inspector did not
shift the responsibility to comply with the contract provisions
from the contractor. Furthermore, there is credible evidence in
the record that indicates that Mr. Tillman questioned Mr. Dandle
about the paper stock when they were adjusting the ink on the
paper. He was assured that the paper met the specifications. T.
250, 263, 292, 335. Mr. Tillman referred to this conversation
with Mr. Dandle in his Quality Assurance Inspection Report, dated
October 29, 1980. Exhibit 9, A.F. Mr. Dandle denied that this
conversation ever took place. T. 56, 60, 69. Mr. Ward also
testified that Mr. Tillman never mentioned paper compliance to
him during the short time they were together. T. 13. The Board
finds that, given the fact that Mr. Tillman and Mr. Dandle took
so long to adjust the ink to obtain a satisfactory press sheet,
it is reasonable to believe that Mr. Tillman did mention the
paper as a possible cause of their difficulty in adjusting the
sample tax form. It is quite conceivable then that Mr. Tillman
was told that the paper met specifications since the contractor
believed the paper supplied to them by Georgia-Pacific met the
specifications. FF. 5. After receiving such assurances and
knowing that he was not in a position to test the paper, Mr.
Tillman was justified in acquiescing to the contractor's wish to
begin production immediately.
Assuming arguendo that acceptance did occur, could the acceptance
be revoked due to the nature of the defect? If the defect were
patent then any acceptance, absent fraud, would be irrevocable.
A defect is patent when it could be readily discovered by an
ordinary examination or test. Geranco Manufacturing Corp., ASBCA
12376, 68-1 BCA ¶ 6898. The contractor argues that because the
inspector suspected something was wrong with the paper, the
defect in the tax form was patent. A latent defect is one that
existed at the time of acceptance but would not have been
discovered by a reasonable inspection. Stewart Avionics, Inc.,
ASBCA 15512, 75-1 BCA ¶ 11,253. It is obvious that this
particular defect, the percentage of fiber content in the paper
in excess of the contract specifications, was latent by nature in
that the fiber content could not be determined by the inspection
techniques utilized by Mr. Tillman. T. 84, 98-99, 106.
Furthermore, the latent nature of this defect was attested to by
all of the witnesses. FF. 7, 8. Since there was no one present
at the inspection who had the knowledge, training, or facilities
to conduct the chemical analysis of the paper to determine the
fiber content of the paper, this defect must be considered latent
as it could not have been discovered by reasonable examination.
Id. Therefore, if acceptance had occurred at the time of the
inspection, as the contractor argues, the latency of the defect
would permit revocation of the acceptance.
The contractor next asserts that the Government constructively
changed the contract terms when Mr. Tillman wrote "O.K. to print"
on one of the sample press sheets and when the Government did not
disclose that it was having the paper tested. The Board holds
that no such constructive change was made. As was concluded
above, the "O.K. to print" only related to the printing on the
paper. As the IRS inspector was not aware of the non-conforming
paper, he could not have accepted it. Moreover, the contractor's
argument that the Government breached its duty to disclose
information that it had in its possession is without foundation.
The Government does have a duty to disclose material information
that it exclusively possesses when nondisclosure would damage the
contractor. This duty did not arise in this case, however, until
after the Government had received the test results. See FF. 16.
None of the cases cited by the contractor establishes that there
is a duty to inform the contractor that testing is in process.
The Government is obliged to notify contractors of test results
and the rejection of goods because of those results within a
reasonable time of learning of those results. Cone Brothers
Contracting Co., ASBCA No. 16078, 72-1 BCA ¶ 9444. This is so
that the contractor can mitigate his losses by halting production
of rejectible goods. The test of what is a reasonable time for
notification depends on the circumstances. Max Bauer Meat
Packer, Inc. v. United States, 458 F.2d 88 (Ct. Cl. 1972). The
Board concludes from the facts of this case that the Government
acted reasonably and in a timely fashion when it informed the
contractor of the test results on the morning of October 29,
1980. FF. 15-17.
The contractor was obligated to provide a conforming product. It
took the risk of rejection of that product when it supplied paper
that did not conform to contract specifications. The terms of
the contract required that paper comply with definite standards
and provided that the Government could test the contractor's
product in order to assure compliance with these standards.
Article 12, Contract Terms No. 1, supra. . The contractor was
aware or should have been aware of these rights and therefore
cannot now claim that the Government should have informed it that
testing was being considered. Additionally, it should be noted
that the contractor was well aware of the dangers of using
recycled paper. Mr. Ward testified that recycled paper varied
greatly in quality. T. 25, 45, 50. Despite the fact that the
contractor knew that visual inspection was practically useless in
determining the fiber or groundwood content of recycled paper,
only one roll of the defective paper was visually inspected. T.
24-28, 35, 40, 45-46, 66-67, 304. Because of the contractor's
inability to analyze the paper properly, it was forced to rely on
its supplier to deliver conforming paper. T. 26, 34, 65. Since
the contractor was aware that neither it or the IRS inspector
could perform the proper chemical analysis of the paper at the
press site to determine compliance with the contract
specifications, it should have expected that the paper might have
undergone some testing by the Government. If it were reasonable
to expect that testing would occur, the contractor cannot now
claim that it was prejudiced because the Government opted to have
the paper tested and did not notify it until the testing was
completed.
The contractor's third argument raises the defense of estoppel
and asserts that it relied to its detriment on the actions and
representations of Government employees. The contractor contends
that because the Government waited until the testing was finished
before it notified the contractor, the entire production run was
completed and the contractor was damaged. Both acts of
commission and omission may permit the defense of estoppel to be
asserted against a party. Silence works an estoppel if a party
is under a duty to speak. United States v. Georgia-Pacific Co.,
421 F.2d 92, 97 (9th Cir. 1970). As held above, the Government
is under no duty to disclose prior to receiving the test results.
Although the Government knew the production was running, it did
not know that the work was not in compliance with the contract
specifications. It did not keep silence to induce or to allow
the contractor to continue what would become later a ruinous
course of activity. Since the contractor knew or should have
known that the IRS inspector was not able to inspect the
defective paper for compliance with the applicable paper
standards, the contractor had no reason to believe that the
Government was accepting defective paper. Therefore, it can not
now argue that it had a right to rely on the fact that the
Government did not notify the contractor that testing was in
process.
Decision
Based upon the facts as established by the record and the above
reasoning, the contractor's appeal is denied in its entirety.
_______________
1/ The contractor cites 50 Comp. Gen. 534 (miscited as 53 Comp.
Gen. 534) for the proposition that approval by a Government
employee of a press proof can operate as an acceptance. However,
this decision can be distinguished on its facts. The
preproduction inspection operated as a final acceptance of the
press proofs only because there was a patent error contained in
the inspected artwork. The word "boundary" was misspelled in the
press proofs as "boundry", an obvious error that should have been
detected by the inspecting official. In the instant case, the
defect was latent in nature since the fiber content could not
have been discovered by the inspection conducted by Mr. Tillman
at the contractor's plant. 50 Comp. Gen., at 535.